No easing?

Inflation in Germany is likely to rise again

Inflation has recently fallen significantly, particularly for food, but in some areas in Germany it is moving in the opposite direction again.

(Bild: APA/dpa/Sven Hoppe)

For two months in a row, Germany reported inflation of just over three percent - just short of the ideal figure set by the ECB. But now the tide seems to be turning again: Inflation is expected to reach three percent again in May.

According to the German Bundesbank, consumers in Germany will have to be prepared for strongly fluctuating inflation in the coming months. According to the monthly report published by the German central bank on Thursday, the inflation rate is likely to fall again in April. "In May, however, the rate could jump back to a value of around 3 percent, as the introduction of the Germany ticket had dampened the price level a year earlier," it said.

Critical time for currency watchdogs
In addition to the phasing out of these statistical base effects, the inflation rate is likely to increase primarily due to the recent rise in oil prices and continued strong wage growth. At 2.3%, the German inflation rate calculated according to European standards was only just above the level of 2% targeted by the European Central Bank (ECB) for the eurozone as a whole in March. The ups and downs in the inflation rate now forecast by the Bundesbank come at a time when the ECB is heading for an interest rate cut.

Its chief economist Philip Lane recently predicted a fluctuating inflation level for the eurozone in the short term. It is important to be aware that the current phase of declining inflation rates will inevitably be "bumpy". In particular, the fluctuations in energy prices in 2023 would have a statistical impact on the monthly inflation figures in the current year.

Positive signals not yet enough for an upswing
According to the Bundesbank, the German economy is not yet on the verge of a sustained upswing despite recent positive signals. "The economic situation in Germany has brightened somewhat, but a far-reaching recovery is not yet assured," the monthly report states. Nevertheless, Europe's largest economy could be spared a recession. According to the German Bundesbank, gross domestic product is likely to have "increased slightly" in the first quarter, after shrinking by 0.3 percent at the end of 2023.

"This expectation is driven by a recent slight increase in industrial production, which was also supported by higher goods exports," explained the central bankers. In addition, exceptionally mild weather in February led to an extraordinarily strong increase in construction output. However, industrial production remains weak in many sectors, while construction is likely to fall back significantly without the supportive effect of the weather.